Dumb Money Decisions: The Lottery

dumb money decisions: the lottery

On the road to financial freedom, there will be a lot of obstacles along the way. An array of dangers await to part you from your ever growing horde of money. A really innocent, but absolutely annoying obstacle is the dreaded “Weekly Office Lottery Ticket”. You know what I’m talking about: everyone at the office pitching in a buck or two every week to dream about escaping the mundanely boring life that is the cubicle. But don’t fall for it! It’s a trap! Uh oh, here comes a rant…


 

Every week at work, many of my fellow co-workers pitch in a few bucks for a group lottery ticket. I’ve politely refused to participate so many times that they don’t bother asking me anymore. Yes, I am the Debbie Downer of the weekly lottery pool at my work. But it’s not because I am a smartass or anti-social. It’s just that I’m not numerically challenged.

Simple Odds

Why is the lottery an insanely dumb money decision? Let me ask you this: would you ever walk into a casino and play roulette on a regular, weekly basis? Hell NO! Why? Because you know the odds are tilted heavily towards the house and you would be a sucker to play a game with such dismal odds on a regular, frequent basis. Yet, people love playing the lottery. Make sense of that.

The Kapitalust Theory on Numerical Idiocy rests with the idea that because the odds in lotteries are so absurdly-astronomically against the player, the human brain is completely incapable of understanding just how outrageous the odds truly are. If you wouldn’t play a game regularly that gave you a 1 in 37 chance of winning, why in the bloody hell would you play a game that gives you a generous 1 in 14 MILLION chance of winning?

Simple Minds

The lottery that my work plays every week is the 6/49. It’s one of two big lotteries nationwide here in Canada. The precise odds of winning the jackpot is 1 in 13,983,816. It costs $3 to buy one ticket with one set of numbers. With these odds and prices in mind, let’s keep it simple and play a little mind game.

Let’s say we play a game once a week from the age of 20 to the age of 100. That is 52 weeks times 80 years for a total of 4160 games. We would have spent – not factoring inflation – $12,480 and would have not increased our odds in the slightest. We essentially wasted 80 years playing the lottery and wasted $12,480.

Simple Arithmetic

Now, that’s not very inspiring. So, let’s get creative and say we could play the lottery for 2000 years. Let’s go back to the time of the Roman Empire at year 0 AD. Again, we will play the lottery every week for 2000 years. That is 52 weeks times 2000 years for a total of 104,000 games. We would have spent (not factoring inflation) $312,000 and, again, we did not improve our odds significantly. We essentially wasted 2000 years playing the lottery and wasted $312,000.

Wow, if 2000 years isn’t enough time to statistically win, how many years do we have to play for there to be a statistically likely chance of winning? Remember the official odds? 1 in 13,983,816. Statistically speaking, you need to play 13,983,816 times to have a statistically fair shot at winning. To play that many times, you would need to play once a week for 268,919 years.

268,919 Years

Anatomically modern humans only started appearing around 200,000 years ago. You would have had to have played when the first modern Homo Sapiens started appearing back, back, back in the day to have a statistically likely chance of winning the lottery. How absurd does that sound?

Dinosaurs and Cavemen

Simply Stupid

You will never achieve financial freedom by swinging for the fences against such astronomical odds. Only losers play the lottery. And I don’t mean to be rude by calling these folks losers because it is an apt description of someone who places themselves in financially precarious situations where they have no chance of climbing the ladder towards financial independence.

It really is kind of sad that so many people in our society play the lottery without really comprehending how absurd it is. No wonder they call it a tax on stupidity. You should always avoid placing yourself in situations where the odds are stacked against you. Especially if financial independence is important to you. Why would you ever, ever want to play the lottery?

  • I’ve never really been a lottery playing type of person, but every once and awhile I’d do a scratch ticket (my parents are big on not giving only a card).

    I remember one of my grad school profs saying “you’re more likely to win the lottery jackpot than have a battery catch on fire” (yes, the class was about batteries)… anyway, that made me realize the odds are pretty crappy 🙂

    • Huh battery catching fire is less likely than winning the lottery? Haha I learn something new everyday! And we actually bought one of those 50 cent vending machine tear-off-window-match-3-cherries-to-win tickets for shits and giggles. The odds were 1 in 10. We sadly did not win 😀

  • While I personally do not spend money on lottery tickets, I would not go that far to call spending money on lottery tickets as “dumb.”

    Firstly, you might actually BE that one in 14 million who wins.

    Secondly, it’s called personal finance for a reason. As long as you’re spending within your own means, I don’t believe in judging. I spend plenty of things on what people might classify on “dumb”: purses, store-bought coffees, make-up, a Masters degree even! (I can even think of over 50 reasons why having children is a “bad investment”). See, there’s arguments for both sides for any purchase and choice. What makes sense to one person may not to another because it doesn’t jive with their own lifestyle and values. But these purchases make sense to those purchasing and perhaps even make them happy. Ultimately, that’s what money is for – isn’t it? As long as they’re not going into debt for said purchases, I wouldn’t call the purchase dumb.

    • I actually overheard at the pub tonight regarding lottery tickets: “I know the odds suck, but I’m playing for shits and giggles.” To me, that is ok. If you realize the immensity of the stupidity you are about to commit and do it consciously, ok whatever go for it.

      I agree that everything is relative and that if something brings pleasure to someone, who’s to argue that it isn’t a good thing if it ain’t harming no one else.

      However, I think when things are approached without much thought – kinda like when the whole shame and resentment post I had – it is rather a dumb way to approach life. If someone very consciously understands the terrible odds, but makes an active conscious choice to play it with that in mind because they realize it can be a pleasurable way to spend time and money, I don’t think that is that dumb.

      But – I’m gonna go out on a limb because I know I’m pretty sure I’m right – most people do not play the lottery after having gone through a rational thought process on why they are playing. Most people play the lottery because they think they are going to win the jackpot. And that is completely stupid.

      I can forgive the people who play games of chance fully realizing that they are doing it in the face of horrendous odds and doing it for their own amusement and pleasure. But not for people who play based on impulse and emotion believing that there is any chance of actually winning games of chance when they are immensely tilted to the house.

      Fundamentally, I guess my beef lies with people making emotional, impulse decisions rather than conscious, logical, and rational decisions. Gamble and have fun, but understand why you are gambling and the odds of the game before committing yourself to having the fun.

  • M

    I couldn’t agree more. You should just save your $3 every week and put it into your investments instead. Hell, why not put it in a boring bond ETF, or even better, a gilt/treasury bond. Guaranteed money vs. losing $3? I know which I’d choose.

    • I’m still trying to hash out completely the conversation with AP above, and I don’t necessarily have problems with people wasting their money – it’s just that if you are going to waste your money, clearly understand why you are doing it and why it brings you entertainment and pleasure before committing to wasting your money.

      Wasting money chasing some false emotional hope on winning the jackpot of a lottery is rather stupid. Perhaps less stupid if you understand you will never win but play moderately regardless because it gives you a sense of pleasure that you value is worth a few dollars a week. Conscious choices rather than blind emotional ones.

  • I used to go in on these office lotteries but have since stopped.

    I just saw the other day that someone won like 5 million (or something like that) and this person has been playing every week since the early 80s. When I saw that I just thought that was a lot of money spent on lottery tickets.

    • I guess the payoff was worth all those years and dollars of playing. But what bothers me is that people hear about these “other people” winning and think that this somehow validates an actual realistic chance of winning. The math doesn’t lie.

      I guess it’s addictive and people play because the personal stake of loss are low (a few dollars a week) and the “potential” payoff is ridiculously high. Does that justify playing?

  • You’re absolutely right, Steve! The Lottery is a bad financial decision!

    I used to partake in a pool a while back, but only because there’s only one national lottery in Belgium and they use the earnings to fund humanitarian projects and the like. Basically, I was giving to charity with a chance of winning a lot of money. Thankfully the tickets didn’t cost $3 a piece, but only €1!

    Great post!
    NMW

    • Now NMW, AP’s comment got me thinking and my thought has been evolving as I’ve been replying to comments to this point. Even if the lottery is mathematically dumb to play – in terms of the terrible odds – is it a game that people play and we might think is dumb but doesn’t necessarily harm anyone because the personal stakes are low and the potential payoffs high?

      I was going to use the following thought experiment below but my wife said that in my thought experiment, the stakes are too high and that’s why no one would play but in a lottery the personal stakes are low to minuscule and that’s why people play. Does that justify people playing the lottery?

      A thought experiment: you can choose one ball out of ~7 billion balls to replace your current life with someone else’s. You have a chance to be Bill Gates, Obama, Bono, anyone. Would you do it? If you are born in the industrialized, developed world with good health and normal intelligence, your immediate answer is “hell no!”

      Why? Even without thinking about it you know how good it is to be you where you currently are compared to most of the other human beings on this planet. You know the odds are horrifically terrible to wind up in any better spot than you currently inhabit right now. You know the odds are very, very likely to land somewhere far worse than your current lot.

      That’s why you would never play this game even for that minuscule shot to be a millionaire, billionaire, celebrity, or whatever.

      • Your wife is definitely right in that the stakes are way too high. The chance of winning a “better life” is ridiculously small, whereas the chance of losing a lot is way bigger too.

        Maybe a better comparison would be: if you could work one day of the month without earning anything, but with a chance to win your annual salary times a thousand, would you do it?

        Playing the lottery long-term definitely is a bad financial decision and you’ll lose a lot of money, but in some situations it’s quite harmless (like the pool I mentioned above).

        Thanks for the awesome though experiment though, it’s these kind of things that make me love your blog.

        Cheers,
        NMW

        • Well, you’re making me blush NMW! Typically, most people find thought experiments pretty boring and can’t be bothered to hash out problems and consequences! I’m glad you enjoyed it 😀 I’ll try to continue with these forever!

  • I do on a rare occasion get one. That is one reason I just don’t carry cash. I am much better with a credit card to be honest :).

    Anyways, I agree it is much better to NOT get one. Chances are you won’t win big, at best you will get your money back. Now that I have learned of a no fee option for investing small amounts of money I can safely put away just $10 in stocks at a time from money saved from refraining from stupid stuff like this :).

    • Kipp, I think I’m starting to get convinced that it is actually smart to play the lottery moderately: with such small personal stakes (a few dollars a week) and such potentially huge payoffs, perhaps it is worth it to put ~$3 a week into a lottery at the shot of winning it huge.

      $3 a week invested for 60 years at a CAGR of 6% equals… $90,667. Hmmmmmm…. would I rather have $90,667 in 60 years or spend $3 a week every week for 60 years at a shot at millions.

      Ok, now I think I’m getting convinced back to my original position that lotteries are actually rather stupid!

  • That is true. The lottery is like a hidden tax. You just don’t know it. Same goes for gambling and inflation. Thanks for the great post, cheers!

    • I’ve heard Buffett comment that inflation is another – hidden – form of taxation. It is a very astute way of thinking of the concept of inflation and it’s very true. It’s also just very hard to wrap one’s mind around the concept of inflation and then making the connection to it as a form of tax. Probably why so little people truly understand inflation at all.

      I’d love to hear your thoughts on whether you think people playing the lottery is dumb or if everything floats in an ocean of relativism (refer to conversation with AP)?

      • Thanks for the reply. Personally, I don’t gamble, smoke and drink. And I don’t have an opinion on people who play the lottery. I know my limitations so I avoid it all together.

  • So true! I don’t think I’ve ever purchased a lottery ticket… ever! Not only is it a waste of money, it’s a waste of time too. You have to take out your wallet, fork over some cash… and then watch to see if you win. Total waste.
    P.S. love the caveman pic

    • I’ve been flip flopping over whether it is a waste or not throughout all of the comments – I think my conclusion is that everything floats in a sea of relativism in terms of what is a “dumb” thing to procure with one’s own money but that I still lean towards it being rather a dumb way to spend money 😀

  • A friend of mine from undergrad took econ and dealt with the rest of us razzing him for buying lottery tickets. He said the expected value is still positive, so that’s why he did it. He at least FULLY comprehended the ridiculous odds. I agree that most people really don’t and are just burning their money.
    I get scratch tickets at Christmas every year, and buy fundraiser lottery tickets for local stuff, but that’s about it for me.

    • I’ve always been tempted by those fundraiser lotteries but could never get myself to fork over the +$100 for tickets because it seemed too much to gamble on. Perhaps I should approach it more from a “it’s a donation and if I happen to win something, that’s gravy” sort of mindset.

      I’ll admit it, scratch tickets, wait, scratch that, all forms of gambling are highly addictive (speaking of myself :D)